Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
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Chapter 14, Problem 12SQP
To determine
The Coase theorem.
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Describe the "Frisch–Waugh Theorem"?
Consider a situation in which two countries, Home and Foreign, can produce a good that is subject to external economies of scale. Assume that firms in both countries face the same average costs curve (AC), given by: AC = m + r/(s+q)
where m=3, r=20, s=2 and Q indicates quantity. The demand curves are given by, respectively:
Q= b - P for Home and, Q = b* - P for Foreign,
where b=20 and b*=40 . Q indicates quantity and P indicates price.
Answer the following questions:
Plot the AC curve and the demand curve for both Home and Foreign in the same graph (put quantity in the x-axis and price and cost in the y-axis. (Please do not use python to plot the graph and would appreciate a picture of the graph).
Assume that both countries are closed to international trade. Compute the equilibrium price and quantity in both countries.
Assume that these two countries open to trade with each other. Which country will produce the good? Explain why.
What are the benefits of international trade…
Chapter 14 Solutions
Micro Economics For Today
Ch. 14.2 - Prob. 1.1GECh. 14.2 - Prob. 1.2GECh. 14.2 - Prob. 1.3GECh. 14.2 - Prob. 2.1GECh. 14.2 - Prob. 2.2GECh. 14.2 - Prob. 2.3GECh. 14.2 - Prob. 2.4GECh. 14 - Prob. 1SQPCh. 14 - Prob. 2SQPCh. 14 - Prob. 3SQP
Ch. 14 - Prob. 4SQPCh. 14 - Prob. 5SQPCh. 14 - Prob. 6SQPCh. 14 - Prob. 7SQPCh. 14 - California once proposed legislation that would...Ch. 14 - Prob. 9SQPCh. 14 - Prob. 10SQPCh. 14 - Prob. 11SQPCh. 14 - Prob. 12SQPCh. 14 - Prob. 13SQPCh. 14 - Prob. 14SQPCh. 14 - Prob. 15SQPCh. 14 - Prob. 16SQPCh. 14 - Prob. 1SQCh. 14 - Prob. 2SQCh. 14 - Prob. 3SQCh. 14 - Prob. 4SQCh. 14 - The perfectly competitive profit-maximizing firm...Ch. 14 - Prob. 6SQCh. 14 - Prob. 7SQCh. 14 - Prob. 8SQCh. 14 - Prob. 9SQCh. 14 - Prob. 10SQCh. 14 - Prob. 11SQCh. 14 - Prob. 12SQCh. 14 - Prob. 13SQCh. 14 - Prob. 14SQCh. 14 - Prob. 15SQCh. 14 - Prob. 16SQCh. 14 - Prob. 17SQCh. 14 - Prob. 18SQCh. 14 - Prob. 19SQCh. 14 - Prob. 20SQ
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- Consider a situation in which two countries, Home and Foreign, can produce a good that is subject to external economies of scale. Assume that firms in both countries face the same average costs curve (AC), given by: AC=m-rQ where m=21, r=0.5, and Q indicates quantity. The demand curves are given by, respectively: Q = 6 - P for Home and Q = 6*1P for Foreign, where b=10, b*=13, and h=10. Q indicates quantity and Pindicates price. Answer the following questions: Assume that the countries are closed to international trade but they are considering a trade agreement. If the countries open to trade, which country will produce the good? Plot the cost and demand curves in a graph and use the graph to rationalize your answer. [HINT: use the functional forms given in the problem to draw your graph, and put quantity in the x-axis and price and cost in the y-axis.] b. The government of the country that may lose the industry anticipates the outcome in a) and decides to introduce a subsidy to the…arrow_forwardConsider the following scenario to answer the following questions: EJH Cinemas, a movie theater next to your university, attracts two types of customers—those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area. There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket. #12. What will be the amount of EJH Cinemas’ total revenue if the price is $7 per ticket? a. $250,000 b. $210,000 c. $180,000 d. $140,000 e. $105,000 #13. What is the amount of consumer surplus if the price is $7 per ticket? a. $120,000 b. $90,000 c. $80,000 d. $40,000 e. $0 #14. What will be the amount of EJH Cinemas’…arrow_forwardCan you explain the answer to this? And also explain the Coase theorem more?arrow_forward
- What is the Coase theorem? What are its implications?arrow_forwardSuppose the demand for standard sized bottled water in the US is Qd=120-30.5P where Qd is monthly quantity demanded in millions and P is the price per bottle in dollars and cents. If the marginal private cost (MPC) of producing the bottled water is one dollar, calculate the market equilibrium quantity. Explain what a constant marginal cost implies. Does that mean the total opportunity cost of producing bottled water is unrelated to how many are produced? Let’s assume that the marginal private benefit (MPB) of bottled water equals the marginal social benefit (MSB). Explain what that means. At the equilibrium calculated in part A, what do you know about buyers’ willingness to pay in each transaction?arrow_forwardOn 1 May 2020, an environmental tax on plastic bags was introduced in Sweden. The tax is 3 kronor per plastic bag and has made the plastic bags in grocery stores about twice as expensive as before. The tax has been criticized for being too high, since some say that the environmental benefits are not that large from using less plastic bags in Sweden. Assume a market with an environmental damage due to an negative external effect. Say that the demand curve is P=12-Q. The supply curve (firms aggregate private marginal costs) is P=1+0.6*Q. The marginal excess damage is constant and equal to 2. Is a Coasian solution possible here? Explain why/why not.arrow_forward
- The following table shows how the marginal benefit enjoyed by John, Mary, Loren, and all other consumers of outdoor rock concerts varies with the number made available by a city government per summer. a) What would be the efficient number of concerts to produce if the marginal cost of production were $425 instead of $1,000? b) Suppose the marginal cost of producing rock concerts is only $250 per concert no matter how many are produced. Use the data to calculate the efficient number of concerts. c) If a Lindahl scheme is used to finance the concerts, what prices of admission should be charged to John, Loren, and Mary?arrow_forwardOn 1 May 2020, an environmental tax on plastic bags was introduced in Sweden. The tax is 3 kronor per plastic bag and has made the plastic bags in grocery stores about twice as expensive as before. The tax has been criticized for being too high, since some say that the environmental benefits are not that large from using less plastic bags in Sweden. Assume a market with an environmental damage due to an negative external effect. Say that the demand curve is P=12-Q. The supply curve (firms aggregate private marginal costs) is P=1+0.6*Q. The marginal excess damage is constant and equal to 2. Calculate the price and quantity on a free market (without an environmental tax). Also, calculate the consumer surplus, producer surplus, the environmental damage and net welfare.arrow_forwardExplain what the Coase Theorem is.arrow_forward
- With rental rates exceeding $3,000 per square foot per year, retail space in Causeway Bay, Hong Kong, is among the world's most expensive. In 2011, the Town Planning Board limited the height of future buildings in the area to between 130 and 200 meters. Real estate developer Hysan Group, which owns nine properties in the area, asked the Board to relax the limits, but the Board denied the application. What externality does the height restriction resolve? How would the Hysan Group benefit from relaxing the height restrictions? Should the restrictions on height be the same throughout Hong Kong?arrow_forward1.Suppose that elk hunting permits are sold in a competitive market by landowners who own property where elk reside, and one permit is required to harvest each elk. The demand curve for elk hunting permits is p=180-0.5q . The total cost to the landowners of allowing q elk to be harvested on their properties is C(q)=0.125q^2 . Draw a graph depicting this scenario. 2. Now assume there also is an amenity value associated with the presence of elk in the forest for wildlife watching and ecosystem health. This is a benefit that accrues to the public at large, not only to the elk hunters or property owners. The external benefits from having Q elk remaining in the forest after each hunting season is 50Q . There are Q0 elk in the forest at the beginning of each hunting season, so Q=Q0-q . Draw a graph depicting this scenario.arrow_forward1.Suppose that elk hunting permits are sold in a competitive market by landowners who own property where elk reside, and one permit is required to harvest each elk. The demand curve for elk hunting permits is p=180-0.5q. The total cost to the landowners of allowing q elk to be harvested on their properties is C(q)=0.125q^2 . Draw a graph depicting this scenario. 2. Now assume there also is an amenity value associated with the presence of elk in the forest for wildlife watching and ecosystem health. This is a benefit that accrues to the public at large, not only to the elk hunters or property owners. The external benefits from having Q elk remaining in the forest after each hunting season is 50Q . There are Q0 elk in the forest at the beginning of each hunting season, so Q=Q0- q. Draw a graph depicting this scenario.arrow_forward
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